Department of Education to tighten Pell Grant eligibility

(CNN) -- A change in eligibility for Pell Grants to be announced Thursday by the Department of Education would cut some 90,000 students from the rolls of recipients and affect more than 1 million others, an education advocate says.

In addition to those who will lose their grants completely, "we estimate about 1.3 million students will see reductions in their grants from $100 to $300 per year," said Terry Hartle, senior vice president of the American Council on Education, a trade association representing 2,000 public and private colleges and universities.

The 5 million recipients each get about $2,500 per year in Pell grants, he said.

They are awarded in the form of vouchers that can be used at whatever accredited school the student chooses.

The new formula depends on more recent state and local tax data paid by low- and middle-income families, Hartle said. The formula is supposed to be updated regularly, but the Department of Education had not done so for 15 years, he said.

At that time, state and local taxes were, on average, higher than they are today, he said. As a result, the recalibrated formula makes it appear that families have more income available to pay college expenses than they did.

"It's always regrettable when federal student aid to individuals is reduced," he said. "This shows the perils of not updating formulas for 15 years."

Susan Aspey, press secretary for the Department of Education, said, "We're required by law to do this and we can't pick and choose which parts of the law to follow.

"Our projections show an increase in the number of students receiving Pell Grants next year and nearly half of Pell recipients are eligible for the maximum award and won't be affected."

The program was created in 1972 by former Sen. Claiborne Pell, who, as chairman of the Senate Education Committee, championed its creation.

It has proven to be immensely popular, with about a third of college students receiving some aid under the program.

Nineteen of 20 of the Pell Grant recipients have annual family income (including that of their parents) of less than $35,000, Hartle said.

Still, he predicted the new regulation will have modest impact on most college students.

"We don't think many students will drop out of college as a result," he said. Instead, they will likely work longer hours, borrow from other sources such as credit cards or reduce their course load, he said.

"It's unfortunate, but the real thing that's unfortunate is that the Pell Grant isn't going up," said Sarah Flanagan, vice president for government relations of the National Association of Independent Colleges and Universities.

"If the maximum were making even moderate increases, all these people on the margin wouldn't fall out of the program."

The last increase -- of $50 per year -- occurred three years ago, she said. The maximum award is $4,050.

The average student graduates from college with $17,000 in debt, she said.

But the program, which costs $13 billion per year, is in deficit. Its costs to the federal treasury jumped several years ago, during the burst of the dotcom bubble, when a number of people opted to return to school rather than try to compete in a tight job market.

Thursday's change is not expected to curtail the program's popularity.

"Even with this change, there will be more Pell Grant recipients and the federal government will spend more money on Pell than it did this year," Flanagan said.

Dallas Martin, the president of the National Association of Student and Financial Aid Administrators, said the tax tables used are not reflective of current tax rates.

But DOE's Aspey said the tables use 2002 data, the most recent available.

In addition, Martin said, the law requires that the formulas be published before July 1.

"Publishing the tax tables at this point in time -- in December -- seems to me to be in violation of the statute."

Aspey disagreed. "It is the opinion of our Office of General Counsel that this is legally permissible. The law requires us to either update the tables or tell Congress why we're not -- we informed Congress that we were delaying publication until we could review the interim report of the advisory committee.

"We have reviewed the report and determined the only option available to us was to update the tables using the most up-to-date information."